What Is the "Blockchain Trilemma"?
The “Blockchain Trilemma” refers to the ability of a blockchain to theoretically possess two of the following three characteristics, decentralization, scalability, and security. All three of these are essential to the idea of a blockchain offering a decentralized peer-to-peer payment system but building on one of the three always takes away from another. In this article we will explore how this occurs and what some major blockchains are doing to try and work around it.
The Blockchain Trilemma
Blockchain’s were created to offer the public a secure and decentralized means of peer-to-peer payment. This is easily implementable on a small scale where only a handful of transactions per second need to be processed, but as adoption of blockchains becomes more mainstream and their workload increases, their transaction processing abilities must as well. For reference, Bitcoin handles roughly 7 transactions per second, Ether handles 30 (purported to handle 100k after “The Merge”, and credit cards are able to handle over 20,000. When trying to match the transaction processing abilities of centralized entities such as AMEX or Visa, blockchains have to give up one of their three core elements, decentralization, scalability, or security. For more on scalability and how different solutions tie into the Blockchain Trilemma, read our article on scaling solutions for blockchains here.
The ”Blockchain Trilemma” refers to a large-scale blockchain’s ability to possess only two of the following three characteristics; decentralization, scalability, and security. Read below why each is an integral part of a blockchain and how prioritizing one of the other two would affect it.
Components of the Trilemma
Decentralization was the founding principle of blockchain technology. Blockchain technology was created with the idea of creating a peer-to-peer payment system free of any central body, government, or other authority.
A problem plaguing many blockchains today is the issue of scalability to a level sufficient enough for mass use and full-scale adoption. On a smaller scale, blockchains can easily handle transactions in a cost friendly and efficient manner. However, with the end goal of being an alternative to major payment providers (such as Mastercard or Visa) blockchains must match or exceed their processing abilities.
The final founding principle of blockchains was security in data and payments. Blockchains by their decentralized nature have open-source coding and fully visible data reflecting all transactions performed on them. This openness leaves them fully vulnerable to hacking, especially due to the extremely lucrative financial gain from successful attacks. Thus, blockchains need to have strong security, allowing for public confidence in their use along with dissuading hacking attempts.
What does all of this mean?
What this trilemma reflects is the choice blockchain creators must make in prioritizing each of the three components to strike an ideal balance between the three. If decentralization is prioritized, a move away from scalability is the consequence. For example, using PoW as a consensus mechanism over PoS will decentralize the blockchain to a great degree, but this comes at the expense of slow transaction speeds as well as high energy consumption. The opposite is true for a focus on scalability, if PoS is utilized as the consensus mechanism transactions can be quickly and efficiently processed but a single or select few centralized bodies will process them eliminating the decentralization factor. Finally, security is essential for any digital process. When security is prioritized scalability is affected, this translates to the opposite of the earlier example, higher security is achieved with the PoW mechanism with many validators instead of one, but this is much slower.